More information is being released daily about the way car insurance companies decide on premiums, thanks to an in-depth report from Consumer Reports: “The Truth About Car Insurance.” Consumer Reports conducted a two-year survey of over 2 billion insurance quotes in every U.S. ZIP Code. What did they learn? “How well you drive may have little to do with how much you pay,” the consumer watchdog organization says.
Most shocking of all: Consumer Reports learned that in nearly every state, a poor insurance credit score will cost much more than a DWI conviction or even an accident. Thousands of people have commented on Consumer Reports’ Facebook page about credit scores and auto insurance. “Credit scores have NOTHING to do with how badly or how well a person drives!” said Rosella LaChapelle Koeller. Michelle Williams wrote, “My insurance is ridiculous,” although she had not had an accident in over ten years. Her credit score was less than the best after the death of her husband, illness and job loss.
What is The Secret Insurance Credit Formula?
The credit formula insurance companies use is different from the regular FICO credit score. Insurance companies use about 30 of the 130 different factors that go into your regular credit score. It is possible to have a good FICO credit score, but a lower insurance credit score, because the factors selected are different – and used differently by the different companies.
Insurance companies have reported their complicated formulas to state regulatory agencies, but Consumer Reports concludes that the formulas are so varied and complex that, chances are, your state regulators don’t have much hope of figuring them out or deciding if they are fair.
For you as an individual, insurance companies are not legally obligated to tell you whether or not you’ve gotten a higher premium based on a low insurance credit score or not.
How Much Will it Cost You?
Only three states, California, Hawaii and Massachusetts, prohibit the use of credit factors in determining auto insurance premiums. So, if you live in Massachusetts, your premiums won’t be increased due to a low credit score. Consumer Reports’ survey covering single drivers showed the following results for New England states:
Excellent Credit $829 DWI $1,413 Poor Credit $1,760
State law protects you against rate increases based on credit scores
Excellent Credit $939 DWI: $1,694 Poor Credit: $2,590
Excellent Credit $1,066 DWI $1,902 Poor Credit $2,364
What Can You Do?
It’s critical to call and get several insurance quotes. Other factors include a “widow penalty” charged to women who’ve lost their husbands, higher charges for female customers in general, and lower rates for customers with higher levels of education. Insurance companies also raise rates on long-time customers if their formulas determine they are unlikely to shop around without you noticing or complaining.
Use our list of companies to find the best rate for you. While most insurance companies use a special insurance credit formula, they do not all use the same formula. Shop around and stay on top of your insurance. You could save thousands!